Pumped hydro making waves in Australia – the role of pumped hydro energy storage in Australia’s energy future

What is Pumped Hydro Energy Storage?

Pumped hydro energy storage (PHES) is a type of hydroelectric power generation that uses two water reservoirs at different elevations to generate electricity. During periods of low electricity demand, excess energy which may be drawn from the grid or renewable sources such as wind and solar, is used to pump water from the lower reservoir to the upper reservoir. When the demand for electricity is high, the stored water is released back into the lower reservoir through hydroelectric turbines, generating electricity. This method of energy storage is highly efficient, with round-trip efficiencies typically around 80%.

The benefits of PHES are numerous:

• reliable and flexible source of energy storage - because the hydroelectricity can be generated by release of water at short notice, this can help to stabilize the grid and integrate more renewable energy sources.
• long lifespan - pumped hydro lifespan can often exceed 100 years, and in combination with low operating costs, this can make it a cost-effective solution for energy storage.
• ancillary services - PHES can also offer additional opportunities, such as frequency regulation and voltage support, which can contribute to further enhancing grid stability. For instance, the Tumut 3 Power Station in Australia has a capacity of 1,500 megawatt (MW) and plays a crucial role in balancing supply and demand in the National Electricity Market (NEM).

PHES in Australia

Despite these benefits, there are only three major PHES systems currently connected to the national electricity grid - Tumut, Wivenhoe and Shoalhaven. Two more are currently under construction, with the Kidston project in north Queensland and the Snowy 2.0 scheme expected to be operational in 2025 and 2028 respectively.

Uptake of PHES has historically been low in Australia due to the high capital costs, potential environmental impacts on waterways and perceptions of limited suitable topography. In recent years, work by the Australian National University produced the Global Pumped Hydro Energy Storage Atlas, which details about 5000 good PHES sites in Australia that do not require new dams on rivers. Only around a dozen sites need be developed to meet Australia's energy storage needs.

However, the tide may be turning. Recently, the Honourable Penny Sharpe, Minister for Energy of New South Wales described PHES as playing "a crucial role in our energy mix—providing reliable electricity without adding to emissions and helping reduce the risks associated with frequent natural disasters." Her remarks came as the Phoenix Pumped Hydro Project ('Phoenix project') was awarded as one of three projects under the latest competitive tender for long duration storage (LDS) Long-Term Energy Storage Agreement (LTESA) under the NSW Government Roadmap scheme run by AEMO Services (Tender Round 5).

First PHES project under the NSW Roadmap: Phoenix Pumped Hydro

The first PHES project awarded under the NSW Government's scheme, the Phoenix project involves the construction of a new 800 MW, 15 hour (11,900 MWh) pumped hydro project next to Lake Burrendong, near Mudgee in the Central-West Orana Renewable Energy Zone. ACEN Australia will develop the project comprising a purpose-built upper and lower reservoir each covering a surface area of approximately 50 hectares, connected by a tunnel to a powerhouse with a pump-turbine unit.

The LTESA scheme operates similarly to the Federal Government's Capacity Investment Scheme (CIS). AEMO Services is responsible for managing and rolling out the tenders for capacity generation, long duration storage and firming capacity under each scheme. While CIS agreements are not available in NSW given the existence of LTESAs, the Federal Government instead provides CIS funding to commit additional firming capacity for LTESA tenders.

The aim of each scheme was, amongst other things, to increase market confidence in investing in the renewable energy transition. In real terms, the LTESA scheme accomplishes this by offering project operators a series of options to access cash flows for specific periods over a long contract term. Under the LTESA scheme, successful proponents are awarded long-term agreements with an agreed revenue 'floor' and 'ceiling'. Increased certainty in revenue and electricity prices are the "win" for investors, which also aids in securing financing for project construction.

LDS projects under the LTESA scheme are evaluated based on financial criteria like competitive costs, high market benefits, low risk allocation, and non-financial criteria such as social licence initiatives, a clear path to operations, organisational capability, and minimal impact on existing generators. These criteria are designed to ensure that the LDS projects are feasible and will benefit all stakeholders - from construction contractors, to financiers and investors, and even the local community.

AEMO Services have run 2 previous tenders for LDS under the NSW Roadmap, which have not been awarded to any PHES. It is perhaps encouraging for those in the industry to now see one awarded in the latest Tender Round 5, indicating the viability of PHES under the NSW LTESA framework. The next LDS tender round for LTESAs is expected to be opened in Q2/2025.

Pumped Hydro's Place in the Future of Energy Storage

Whilst PHES is an effective and efficient energy storage mechanism, there are other offerings that have to date been more popular in Australia. Battery Energy Storage Systems (BESS), for example, have enjoyed significant market uptake. Currently, there are 25 'big battery' registered to participate in the NEM, and more than 200 further BESS projects in development. BESS are popular as they can provide fast and flexible energy storage, without the need for specific geographic conditions, which can be used to balance supply and demand on the grid. However, BESS can be more expensive than pumped hydro, may have a shorter lifespan, and is generally less suitable for deep storage capable of dispatching electricity for more than 12 hours. For instance, the Hornsdale Power Reserve in South Australia, with a capacity of 150 MW/193.5 MWh, has been successful in providing grid stability and reducing electricity prices, but the costs associated with battery storage remain a challenge.

Another emerging option is compressed air energy storage (CAES). CAES involves compressing air and storing it in underground caverns or tanks. When electricity is needed, the compressed air is released through a turbine to generate electricity. CAES can provide reliable and flexible energy storage, but it may be less efficient than pumped hydro and BESS, with the leading McIntosh CAES plant in Alabama, USA operating at an efficiency of around 54%. Australia's first CAES facility was recently approved by the NSW government, with Canadian company Hydrostor intending to build the Silver City Energy Storage Centre (SCESC), a 200 MW/1.6 GWh CAES facility costing $638 million in a disused mine cavity near Broken Hill in the west of the state. Utilising newer adiabatic technology, it is hoped that the SCESC will operate at a higher efficiency of up to 70%.

As Australia continues its transition to renewable energy, the long-term storage of the energy that is generated remains a key priority for the stability and longevity of our energy market. With Australia's current storage capacity only at 3GW, and at least 22GW predicted to be necessary by 2030, meeting this storage capacity is expected to require diversified long duration storage options, including PHES, battery storage, and compressed air energy storage. Alternative long duration energy storage technologies are still emerging, including redox flow and thermal storage, which may also play a role in the future.

PHES, BESS, and CAES all provide energy storage solutions that can help to support the transition to renewable energy and enhance grid stability. For this reason, it is encouraging to see the Phoenix project awarded in the latest long duration storage tender in NSW, hopefully messaging to the market a greater willingness in regulators and government to support and invest in diversified storage options.